Will Ride-Sharing Apps Replace Car Ownership?

I recently caught a ride in San Francisco from a guy named Boris, who picked me up in his black Volkswagen Golf with tinted windows.

I wasn’t hitch-hiking--I was using Lyft, a new app that matches riders with drivers. Lyft, and another new service, SideCar, provides ride-sharing to help people catch a ride from amateur drivers. Using the SideCar or Lyft app, people can see other drivers who are nearby, how long it will take for a car to arrive and request a ride. The services are designed to be affordable--roughly 30% less than the price of a taxi cab ride for Lyft.

In the long term, will these ride-sharing apps threaten to replace car ownership?

Unlike startup Uber, which provides rides via professional drivers, SideCar and Lyft provide drivers who are regular people who have a car. Both SideCar and Lyft screen drivers and run criminal background checks to make sure the drivers are safe. SideCar keeps driver's license registration, insurance records and photos of the drivers and their cars. Lyft also does a phone interview then an in-person interview of drivers. Both also have a rating system to riders can rate drivers and vice versa. Riders also have to use their credit cards so they are not anonymous. This makes them safer than casual carpools, which are totally anonymous, they say.

If services like SideCar and Lyft become trusted and easy to use, will people, especially city dwellers, ditch their cars and just catch rides everywhere? In other words, will smart phones replace cars? It's no small question. Auto manufacturers could be affected. Cities could have less congestion and traffic--and be organized differently. Pollution could be improved with less cars on the roads. Since World War II, American society has been organized around the automobile in eating, working and entertainment, says SideCar CEO Sunil Paul. But with more services like SideCar, and if people could get used to ride shares and car shares (from startups such as RelayRides and Getaround), that could change.

"We expect as we continue to get more and more drivers and passengers and as we spread beyond San Francisco. It's going to be easier and easier to replace the use of your car with SideCar," Paul says. "We believe in the next year your phone can also be your next car. We’re building out the capability to make that happen. We think there’s a fundamental transformation happening in information technology allowing us to rethink multiple sectors of the economy."

But would you trust a company enough to jump in a car with a stranger? For many that idea is still scary--and it's the biggest question about these services. But people have said the same thing about Airbnb and sleeping in a stranger's house--and now that company has become popular. "Lyft feels like geting picked up by a friend," says Logan Green, cofounder and CEO of Zimride, which runs Lyft. "We take a lot of care with who’s let into the Lyft network. It doesn't feel like you're having your own private driver. It feels like one of your friends are picking you up. You can sit in the front seat and exchange stories with the driver."

That’s what I did with Boris, my driver. I found out he was deferring law school for a year and needed a gig while figuring out what to do next. He said he likes Lyft because it’s flexible work and also pays relatively well. He says the demand is growing quickly especially among tech workers, and he can get as much as 40 to 50 hours of work per week.

Carpooling and ride-sharing have been around for years, but it's inconvenient and a hassle, says Paul. Now with smartphones and apps, people can get rides anywhere quickly.

"One of the big reasons it's possible to create these services is we now have an infrastructure of trust with social media," Paul says. "By social media I don't mean Facebook or LinkedIn but the broader idea of a star rating system like Yelp and other kinds of social collaboration systems. That infrastructure of trust makes it easier to share and collaborate with others, including strangers. You absolutely couldn't do this without the smartphone, GPS and the sharing-trust infrastructure."

SideCar and Lyft seek to avoid being considered taxis because they do not charge riders for rides, like a taxi or limousine. Instead riders pay on a donation system. The apps provide a suggested amount that a rider should pay for the ride based on what others who have used the service have paid. (SideCar takes 20% of donations as a fee. Lyft is similar.) Riders technically don't have to pay anything, but generally they do pay something, Paul says. Technically, drivers can rate riders low for not paying anything. But that's uncommon, he says. Usually not paying is not the problem. "Our hypothesis is, generally speaking in our experience, people who don’t pay tended not be very nice people anyway," Paul says. "They've gotten rated down for other reasons."

But will ride-sharing work as a business? Both SideCar and Lyft have raised venture capital: Zimride has raised about $7.5 million from Mayfield Fund, Floodgate and K9 Ventures and SideCar raised funding from Paul's fund Spring Ventures, as well as a long list of investors including SV Angel, Lerer Ventures, Jeff Clarke, Lisa Gansky and Mark Pincus. Generally SideCar and Lyft work on the honor system for payment, like museums do when they ask for a donation for admission. "The capitalist in me was worried this wouldn’t work," Paul says. "But the human in me is confident people are fair on the whole. It's really validated my faith in humanity and that most people are fair."